Firm Disclosure:
The DIVERSIFIED Trading System can be generally classified as a long term system that seeks to take advantage of the diversification of the underlying methodologies utilized by the five Little Brook trading programs. In general since the DIVERSIFIED Trading system is long term in nature, large and sustained directional movements in the futures markets are necessary for the system to be profitable.
Mt. Lucas principals include: Frank Vannerson, Timothy Rudderow, Roger Alcaly and Paul DeRosa.
The Commodities Corporation Connection
Frank Vannerson is more than a name on a principal list. He was one of the founding traders at Commodities Corporation, the Princeton-based firm that Helmut Weymar established in 1969 and that became one of the most important incubators of systematic trend following in the industry’s history. Vannerson joined Weymar’s original group of six traders, bringing a background that included inventing a model to predict wheat prices as part of his Princeton PhD thesis. He was, from the beginning, building quantitative approaches to commodity price forecasting.
Commodities Corporation is the firm that launched or trained a generation of systematic traders including Michael Marcus and Bruce Kovner. The intellectual culture of the firm, quantitative analysis of price data, systematic rules for entry and exit, diversification across markets, was the same culture that produced the TurtleTrader experiment. Vannerson’s presence in Mount Lucas Management places the firm in direct lineage with those origins.
The Five Little Brook Programs and the Diversification Logic
Mount Lucas’s DIVERSIFIED Trading System draws on five underlying Little Brook trading programs. The use of multiple underlying programs rather than a single methodology is a structural diversification choice. Different systematic approaches capture trends differently: they enter at different breakout thresholds, hold for different durations, and exit on different signals. A portfolio of such programs will not all be in the same trade at the same time, and will not all exit at the same moment when a trend reverses. The aggregate return stream of the combined portfolio is smoother than any individual program would produce on its own.
This is the same logic behind the TurtleTrader rules and their two-system structure. The Turtles ran both a shorter-term system and a longer-term system, which allowed them to capture trends at different time scales. A market that failed to generate a signal in the shorter-term system might generate one in the longer-term system, and vice versa. Mount Lucas extends that logic further across five programs.
Long-Term Trend Following: What the Disclosure Tells You
The disclosure statement is worth reading as a description of what systematic long-term trend following requires. “Large and sustained directional movements in the futures markets are necessary for the system to be profitable” is the most honest description of the strategy’s dependency that a disclosure document can contain. It is saying: this system does not produce returns in choppy, trendless markets. It produces returns when markets make the kind of large, sustained moves that occur across currencies, bonds, commodities, and equity indices during periods of genuine macro directional change.
That is the fundamental trade-off in long-term trend following. Extended periods of flat or negative performance during choppy market conditions are the cost of participation in the large directional moves that define the strategy’s returns. A trader or investor who cannot tolerate that cost should not be in a long-term trend following programme. A trader who can tolerate it, and who has the capital base to remain in the programme through multiple losing periods, participates in the large returns that occur when conditions align.
Frequently Asked Questions About Mount Lucas
What is Mount Lucas Management?
Mount Lucas Management is a systematic trend following CTA. Its principals include Frank Vannerson, Timothy Rudderow, Roger Alcaly, and Paul DeRosa. The firm runs the DIVERSIFIED Trading System, which combines five Little Brook trading programs into a long-term systematic approach that requires large and sustained directional movements in futures markets to be profitable.
Who is Frank Vannerson?
Frank Vannerson was one of the original traders at Commodities Corporation, the Princeton firm founded in 1969 that became one of the most influential early incubators of systematic trading. He came to Commodities Corporation with a Princeton PhD that included a quantitative model for predicting wheat prices. His presence in Mount Lucas Management connects the firm to the founding generation of systematic commodity trading.
What are the Little Brook trading programs?
The Little Brook programs are the five underlying systematic trading programs that Mount Lucas combines in its DIVERSIFIED Trading System. Using multiple underlying programs rather than a single method provides structural diversification: different programs enter and exit trends at different thresholds and durations, so the combined portfolio has a smoother return profile than any single program would produce alone.
Why does long-term trend following require large sustained movements?
Because the strategy only generates returns when it can hold a position through the normal fluctuations within a trend and capture the full magnitude of the directional move. A long-term trend following system enters on a breakout signal, holds through the volatility that occurs within the trend, and exits when the trend reverses. In markets that oscillate without a clear direction, this produces a series of small losses as positions are entered and stopped out without capturing any meaningful directional move. The returns come when markets make sustained multi-month moves, which occur less often but produce gains large enough to offset all the small losses from failed attempts.
Trend Following Systems
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